Zacks Industry Outlook Highlights AMETEK, Fortive and Itron
For Immediate Release
Chicago, IL – October 13, 2023 – Today, Zacks Equity Research discusses AMETEK AME, Fortive FTV and Itron ITRI.
Industry: Electronics Testing
Link: https://www.zacks.com/commentary/2164899/3-electronics-stocks-with-upbeat-industry-prospects-to-watch
The Zacks Electronics – Testing Equipment industry has been benefiting from 5G-related growth opportunities, strengthening automation drive and the Industry 4.0 momentum for a while. A strong recovery in the automotive sector, along with the growing proliferation of self-driving vehicles and solid prospects of the Advanced Driver Assistance System, is a tailwind to the industry players. The increasing adoption of software-enabled testing instruments and devices remains another positive. Industry participants like AMETEK, Fortive and Itron are well-poised to benefit from the aforementioned factors.
However, the challenging global macroeconomic environment, end-market volatility, inflationary pressures, unfavorable forex and growing geo-political tensions are persistent concerns for the underlined industry.
Industry Description
The Zacks Electronics – Testing Equipment industry comprises companies offering advanced instruments, electronic testing equipment solutions, thermal management systems, electrical connectors, motors and various test solutions. The major end markets served by this industry are consumer, automobile, industrial, aerospace and defense, healthcare, semiconductors and communications, to name a few. Industry participants have been making technological advancements to gain traction among semiconductors, vehicles, machinery, smartphones and medical device manufacturers, who are constantly increasing their spending on electronic components.
4 Trends Shaping the Future of Electronics - Testing Equipment Industry
5G Prospects a Boon: The growing deployment of 5G holds near-term promises for the industry players. Another major positive is an uptick in demand for 5G test solutions required for 5G deployment. The current coronavirus-triggered work-from-home and learn-from-home waves globally, which continue to bolster the demand for high-speed Internet services, bode well for electronic companies enhancing their 5G efforts.
The growing number of high-speed data centers worldwide is another tailwind. Given the upbeat scenario, the industry is anticipated to remain on the growth trajectory, backed by solid efforts to reinforce the 5G strength.
Solid Adoption of Motion Control & Test Systems is a Positive: The rising utilization of precision motion-control solutions and automatic test systems in motion-control devices and testing products, particularly in the aerospace, automation, medical and military markets, is an upside. Further, commercial motor and autonomous vehicles will likely continue to buoy demand for vehicle-tracking systems, fleet-management solutions and other private fleet applications, which are part of the industry's key offerings.
Synergies in the Pharmaceutical Market Are Tailwinds: The industry is steadily gaining from the increasing use of electrical instruments and software to interrogate the biological properties of molecules and cells in clinical and medical science research. The rapid adoption of the solutions is anticipated to drive growth for participants in the pharmaceutical end market.
Agilent is capitalizing on the trend and gaining traction in the life science research space. The pharmaceutical market holds immense prospects, courtesy of the growing utilization of electronic testing equipment. Rising demand for RF test equipment by medical device manufacturers is another uptrend.
Macroeconomic Headwinds Pose Concerns: Rising inflationary pressure and fears of global recession have negatively impacted the rate of deal wins. Due to the challenging macroeconomic scenario, enterprises are reluctant to sign multi-year deals worldwide. These trends do not bode well for industry participants.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Electronics – Testing Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #77, which places it in the top 31% of more than 250 Zacks industries.
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks worth considering for your portfolio, let's look at the industry's recent stock-market performance and the valuation picture.
Industry underperforms S&P 500 & Sector
In the past year, the Zacks Electronics – Testing Equipment Industry has underperformed the Zacks S&P 500 composite and the broader Zacks Computer and Technology sector.
The companies in the industry have collectively gained 16.2% compared with the S&P 500 and the Computer and Technology sector's rally of 19.2% and 38.3%, respectively, in the said period.
Industry's Current Valuation
Based on the forward 12-month price-to-earnings ratio (P/E), a commonly used multiple for valuing the Electronics – Testing Equipment stocks, the industry is currently trading at 22.74X, higher than the S&P 500's 18.6X while lower than the sector's 23.35X.
Over the past five years, the industry has traded as high as 31.87X and as low as 18.87X, with a median of 23.94X.
3 Testing Equipment Stocks to Keep an Eye On
Itron: This Liberty Lake, WA-based entity is gaining from the increasing demand for electric vehicles and distributed energy resource management. Further, strength in software license and managed services drives the top line.
The Zacks Rank #1 (Strong Buy) player, one of the leading global suppliers of a wide range of standard, advanced and smart meters and meter communication systems, including networks and communication modules, software, devices, sensors, data analytics and services, is experiencing the ramp-up of new and existing deployments.
Further, its growing efforts toward expanding product lines that aid the utilities in meeting decarbonization and sustainability goals are positive. Additionally, the company's strength in the Water vertical on the back of its robust solutions remains plus
You can see the complete list of today's Zacks #1 Rank stocks here.
Shares of Itron have gained 36.2% in the past year. The Zacks Consensus Estimate for fiscal 2023 earnings has been revised 1.4% upward in the past 30 days to $2.19 per share.
AMETEK: This Berwyn, PA-based player is gaining from solid contributions from the Navitar, Alphasense, Magnetrol International and Crank Software acquisitions, which are driving growth in its Electronic Instruments segment. Benefits from the Pacific Design Technologies buyout are aiding the Electromechanical segment.
AME manufactures electronic appliances and electromechanical devices and remains optimistic about its AMETEK Growth Model. This Zacks #2 Ranked player's proper execution of its four core growth strategies, namely operational excellence, global market expansion, investments in product development and acquisitions, are expected to aid its finances soon.
The AME stock has gained 32.4% in the past year. The Zacks Consensus Estimate for the company's 2023 earnings has been revised 0.2% upward over the past 30 days to $6.26 per share.
Fortive: This Everett, WA-based entity is benefiting from the strong demand trends for software and services offerings and increased orders. A solid momentum across the Fortive Business System tools is a crucial catalyst. Strengthening momentum across Intelligent Operating Solutions and Precision Technologies is another positive.
The Zacks Rank #3 (Hold) player, a provider of industrial technology and professional instrumentation solutions, is also benefiting from solid industrial and scientific business momentum owing to iNet expansion and cross-sell activity.
The stock has gained 28.5% in the past year. The Zacks Consensus Estimate for Fortive's 2023 earnings has been unchanged at $3.42 per share over the past 30 days.
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